Landlords and tenants at millions of square feet of space operated by WeWork across the globe will be reviewing worst-case scenarios after the coworking giant warned "substantial doubt exists" about its ability to continue as a going concern.

In second-quarter results the New York-listed company, which is majority-owned by Japan's SoftBank, said its subscriptions for individuals or companies to gain desk space in offices it rents out around the world have dropped because of issues including increased competition and “macroeconomic volatility” that led to a higher member churn.

WeWork said it will need to improve liquidity and profitability over the next 12 months to ensure it stays in business. It did not discuss its continued listing on the New York Stock Exchange where it still needs to ensure its stock price moves above $1 a share. The company's shares closed at 21 cents in New York on Tuesday and lost another third of that value to hit 14 cents at one point in extended trading.

The coworking company did say it remains committed to various strategies to resolve its difficulties.

In a separate statement, it named four new directors to its board who, interim chief executive David Tolley said, have “the deep financial expertise and robust business experience that” will “add immense value” as WeWork works on various turnaround measures including “sustainably reducing costs, continuing to grow memberships and revenue, and strengthening" its balance sheet.

The company breaks back these measures to four strands: reducing rent and tenancy costs via restructuring actions and negotiation of more favourable lease terms; increasing revenue by reducing member churn and increasing new sales; controlling expenses and limiting capital expenditures; and seeking additional capital via issuance of debt or equity securities or asset sales.

As Jonathan Price, an expert in finance and flexible offices who built a £60 million portfolio of business centres for Close Brothers between 2000 and 2006, says on current projections, the company "could run out of cash and at that point that will be crunch time". WeWork's cash and cash equivalents declined to $205 million from $625 million in the year-earlier second quarter.

That raises the prospects of various scenarios, the worst for exposed landlords and tenants being bankruptcy and liquidation.

Despite a move into management agreements WeWork's business model remains weighted towards long-term leases sold to customers on shorter term licences.

Price says if WeWork did collapse it would make the high vacancy rates in markets, particularly in North America, "even more painful for landlords".

"You may find landlords starting to default themselves which may have knock-on implications for the banking system. If it collapsed completely it could be potentially serious for a number of markets in the US in particular."

For WeWork's tenants or customers and, in particular the small businesses, the main implication at first would be potentially losing their deposits. Then it would be trying to find new space.

Price points out: "In some markets you could walk into someone else's space fairly quickly even where occupancy levels are quite high for flexible space, for instance London. The wider flexible office market is strong."

To this end, WeWork has continued to secure new occupiers including major corporates and continues to point to the value of its brand. In March, its then-CEO Sandeep Mathrani issued a rallying public letter to shareholders saying "this is WeWork’s moment", after a "new world of work" had emerged during the pandemic. Mathrani said then the group does not own the assets where it operates, so is not "bootstrapped" by mortgages on any assets.

As an example, WeWork has 150,000 square feet of space at Hong Kong investor Kingboard's Moor Place in the City. As recently as May, it emerged that Amazon will take around 70,000 square feet there and is is understood to have an agreement to expand into a further 30,000 square feet.

So what exactly does WeWork lease?

On 30 June, WeWork’s consolidated real estate portfolio covered 610 locations across 33 countries, which supported approximately 715,000 workstations and 512,000 physical memberships (digital memberships are also available). Its physical occupancy is 72%, and it has reported a decrease in physical memberships of 3% year-over-year.

Average revenue per physical member was $502 in the second quarter of 2023, an increase of 4% from the second quarter 2022.

In London, WeWork operates from 50 centres and, according to its first quarter results, its portfolio is approximately 1% of total office stock in the capital. According to CoStar's data it leases around 4 million square feet of space in the city, averaging 61,000 square feet. The largest is the 296,000 square feet it operates at Almacantar's Two Southbank Place. Other landlords include Brookfield, Abrdn and M&G.

In its first quarter results WeWork said its 2022 gross sales in London were equivalent to 35% of traditional leasing activity, while accounting for roughly 1.5% of total office stock.

In Manchester it operates from Deka's 1 St Peter's Square, where it has around 44,000 square feet, Schroders' No. 1 Spinningfields, where it occupies around 55,000 square feet, and Kinrise and Karrev's Dalton Place where it has all 77,000 square feet.

There are landlords at WeWork centres that will be happy to take back the space if necessary, and some who will be prepared to continue to operate it on a serviced office basis.

Leading office landlords such as GPE, Landsec and British Land have all set up flexible workspace platforms and turned over increasingly large percentages of their portfolios to this offer.

Cal Lee, founder and global head of Savills' flexible workspace platform Workthere and co-head of Savills Flex, says the good news is demand from flexible operators for space remains strong and leading landlords have increased appetite to offer flexible space themselves.

"Flexible offices take up by operators has been low in London and the regions this year but it is not for lack of demand. What we have seen when WeWork space has come back so far is some landlords will want to get their hands dirty and handle operating and leasing the space themselves while others will seek management agreements with operators and are being successful doing so.

"Management agreements are perceived to be more risky without guaranteed rental income, but they do afford landlords a lot more control over the product and services provided and therefore a much closer relationship with the end users of the space, all of which landlords are beginning to see the benefit of as they curate their offer for prospective tenants."

Price adds: "Some landlords would not want the hassle of the running of serviced offices themselves but there are many that could do it."

Another leading national office agent who declined to be quoted on the record as he is advising affected landlords said: "Licences would be returned to landlords. What you might find is where WeWork occupies around 20% of a multilet building the landlord will want to take back that space, but if much more is occupied by WeWork they would seek an operator."

During the pandemic, as office take-up collapsed, flexible workspace that was returned by operators in London was often transferred to flexible platforms, with an example being GPE taking back 175 Piccadilly to create fully managed office space.

WeWork has been exiting leases as it seeks to scale back its global portfolio for some time.

In Birmingham, Hines signed WeWork for 97,000 square feet at 6 Brindleyplace in 2019. When WeWork decided it would not be moving into the space, Hines was handed back the lease. Advised by Savills, it went to market seeking a flexible operator partner. X+Why was eventually selected for 40,000 square feet after multiple bids. The resulting managed space agreement see Hines and X+Why invest jointly in the facility, which provides hot desking and private offices.

At Aldgate Tower in the City of London, WeWork handed space back to Brookfield, which then tied up with InfinitSpace in an agreement for all 60,000 square feet managed under a new brand, Beyond. InfinitSpace is a new business launched by former WeWork Europe boss Wybo Wijnbergen.

At Devonshire Square, the major campus in Spitalfields where WeWork has handed back some space it was due to occupy, landlord Nuveen is understood to have been operating and leasing the space on its own.

The spectre of liquidation raised by WeWork's "going concern" update is a worst-case scenario.

In terms of WeWork's potential New York Stock Exchange delisting, the mathematics remain very much in place for the group to conduct a reverse stock split to cure the problems around its share price.

But does WeWork want to remain on the NYSE? "It is quite expensive to be listed if the share price keeps falling down," Price points out.

In a statement supplied to CoStar News, WeWork said: "There is no update to share. As disclosed in June, WeWork shareholders have authorised the Board to effect a reverse stock split, should it determine that is the best route for the company."

A clear potential outcome is a takeover as other companies will be interested in taking on a business with a famous brand operating from prime locations.

Price says: "I hope they are in talks about a rescue or restructuring that would bring down their very high costs and in particular the high central overheads. The cost control has been reducing this but not enough. I think a sensible solution is for a private equity firm to come in and recapitalise the business and put in new management who are capable of turning it around."

One option would be its global rival IWG, the owner of Regus and Spaces, swooping for the business in some way. The company is never averse to takeovers.

In its own buoyant second quarter results this week chief executive Mark Dixon said its revenues were soaring to record levels on the back of a global pivot towards more flexible office working and IWG's own focus on management agreements.

He was adamant the flexible offices sector is thriving, while he took a swing at WeWork's business model.

"In terms of our friends at WeWork it is the same business but a different model and that is what is causing them a problem. The space is wrongly fitted out. We have taken over maybe 50 WeWorks and we have to refit them and go again. The performance here would be better if they reshape in some way. This is an anomaly from a massive investment made a few years ago. It is unravelling but it will normalise."

In a statement another operator, Simon Eastlake, managing director of Office Space in Town, was keen to make a similar point.

“What we need to remember is that WeWork is a company, not a movement. Hybrid working continues to prosper, and so too do flexible, serviced offices. Each workspace provider will have its own business model – at Office Space in Town, for example, we prioritised purchasing our buildings and now own each of our sites – and it is this model – and not the market, which remains favourable – that will allow a company to prosper or decline.”

It's a chastening message for a business once valued at $47 billion.